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Exhibit 2.3
MTV Networks
0000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
May 19, 1999
Liberty Media Corporation
0000 Xxxxx Xxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
TCI Music, Inc.
00 Xxxxxx Xxxxx Xxxxx,
0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Re: Joint Venture
Dear Sirs:
This letter agreement, together with the term sheet attached hereto as Exhibit A
(the "Term Sheet", this letter agreement and the Term Sheet being collectively
referred to as the "Xxxxx.xx Agreement"), sets forth the terms and conditions
pursuant to which Liberty Media Corporation ("Liberty"), TCI Music, Inc.
("Tune"), a majority owned subsidiary of Liberty, and MTV Networks, a division
of Viacom International Inc. ("MTVN"), have agreed to form and operate MTVN
Online, l.p., a Delaware limited partnership ("Xxxxx.xx"). The business of
Xxxxx.xx shall be to develop, operate, manage, market, promote, distribute and
license text, audio and/or video music, music-related and/or music-themed
services online and to engage in activities reasonably related thereto,
including but not limited to e-commerce applications and consumer oriented
commercial transactions related thereto, and certain related matters, all as
more specifically described in the Term Sheet. Capitalized terms used but not
defined herein shall have the respective meanings assigned to such terms in the
Term Sheet.
1. Agreement to Form Xxxxx.xx. Subject to the terms and conditions of
this Xxxxx.xx Agreement and as more fully described in the Term Sheet, at the
Closing (as defined below) (i) MTVN shall file with the required governmental
authorities a Certificate of Limited Partnership containing such provisions as
are required to form Xxxxx.xx on the basis set forth in
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this Xxxxx.xx Agreement, (ii) MTVN or its designated affiliate or affiliates
shall make the MTVN Contribution, (iii) Tune or its designated affiliate or
affiliates shall make the Tune Contribution, (iv) MTVN or such designated
affiliate or affiliates shall receive general and limited partnership Interests
in Xxxxx.xx representing an aggregate of 90% of the Interests in Xxxxx.xx
outstanding immediately following the Closing, and (v) Tune or such designated
affiliate or affiliates shall receive limited partnership Interests in Xxxxx.xx
representing an aggregate of 10% of the Interests in Xxxxx.xx outstanding
immediately following the Closing.
2. Closing of the Transaction. Unless the parties hereto shall agree in
writing upon a different location, time or date, the closing (the "Closing")
shall take place at the offices of Xxxxxx Xxxxxxx & Xxxx LLP, One Battery Park
Plaza, New York, New York, at 10:00 A.M. on (x) June 16, 1999, or (y) if the
conditions required to be satisfied pursuant to Section 3 hereof have not been
satisfied or waived by June 16, 1999 then on the second business day after
satisfaction or waiver of the last of the conditions required to be satisfied
pursuant to Section 3 hereof, but not later than July 15, 1999.
3. Closing Conditions. (a) The only conditions to the obligation of
MTVN to consummate the Closing shall be: (i) the accuracy in all material
respects of the Customary Representations (as defined below) and the
representations and warranties contained in this Xxxxx.xx Agreement, in each
case, of each of Tune and Liberty, (ii) the compliance in all material respects
by each of Tune and Liberty with their covenants set forth in this Xxxxx.xx
Agreement and the Customary Covenants (as defined below) of Tune and Liberty,
(iii) no party hereto being subject to any order, stay, injunction or decree of
any court of competent jurisdiction restraining or prohibiting the consummation
of the transactions contemplated by this Xxxxx.xx Agreement, (iv) since December
31, 1998 there having been no material adverse change in the financial
condition, results of operations or business of Box or SonicNet other than
Material Adverse Change Exclusions (as defined below). Material Adverse Change
Exclusions shall mean (A) any loss of subscribers or advertising; provided that
Tune has acted in good faith, or (B) changes that occur as a result of the
transactions contemplated hereby (including, without limitation terminations of
affiliation or other agreements as a result of change in control or no
assignment provisions), (C) failure to launch the "Box Service" in additional
systems as a result of MTVN's failure to consent to the payment of launch fees,
(D) changes that occur as a result of the failure of Box or SonicNet to take any
action which requires MTVN's consent where such consent is not granted, and (E)
changes if any disclosed to MTVN prior to the execution of this Xxxxx.xx
Agreement in an e-mail sent by Xxxxxxxx Xxxxxxxxxxx or in a teleconference with
Xxxx XxXxxxx initiated by Tune and Liberty with MTVN, in each case on May 18,
1999 for such purpose.
(b) The only conditions to the obligation of each of Tune and
Liberty to consummate the Closing shall be: (i) the accuracy in all material
respects of the Customary Representations and the representations and warranties
contained in this Xxxxx.xx Agreement, in each case, of MTVN, (ii) the compliance
in all material respects by MTVN with its covenants set forth in this Xxxxx.xx
Agreement and the Customary Covenants of MTVN, and (iii) no party hereto being
subject to any order, stay, injunction or decree of any court of competent
jurisdiction restraining or prohibiting the consummation of the transactions
contemplated by this Xxxxx.xx Agreement.
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(c) Without limitation of the conditions set forth in
paragraph 3(a)(iii) and 3(b)(iii), the parties agree that the approval of third
parties shall not be a condition to the respective obligations of the parties to
consummate the Closing; provided, however, that:
(i) If the approval of the Federal
Communications Commission ("FCC") of the
transfer of the low power television station
licenses from Box to Xxxxx.xx has not been
obtained by the Closing, such licenses will
not be transferred until such approval is
received and Box and Xxxxx.xx will enter
into a customary LMA agreement for
situations similar to this situation
pursuant to which, to the extent legally
permissible, Xxxxx.xx will retain all
revenues and bear all expenses and
liabilities attributable to such stations
and which LMA agreement will remain in
effect until the applicable FCC approvals
are obtained; and
(ii) If approval by Argentine governmental
authorities ("Argentine Approval") of the
transfer of Box Argentina, S.A. ("Box
Argentina"), is required and has not been
obtained by the Closing, then Box Argentina,
S.A. will not be transferred until such
approval is obtained and, if legally
permissible under Argentine law, Box and
Xxxxx.xx will enter into an agreement
pursuant to which Xxxxx.xx will operate Box
Argentina and will retain all revenues and
bear all expenses and liabilities
attributable to Box Argentina until the
applicable Argentine Approval is obtained;
provided that if such arrangement is not
legally permissible, the parties will enter
into another mutually satisfactory
arrangement.
4. Access to Information. Prior to Closing, each of Tune and MTVN shall
make available to each other during regular business hours and upon reasonable
prior notice all books and records relating to the MTVN Contribution and the
Tune Contribution regardless of location (and except as otherwise provided
herein, all other books and records which have material information relating to
the MTVN Contribution and the Tune Contribution and which a reasonable person
would anticipate reviewing in connection with the transactions contemplated by
this Xxxxx.xx Agreement) (the "Confidential Information"). Each party shall be
obligated to maintain the confidentiality of the Confidential Information in
accordance with the terms and conditions set forth in the Term Sheet. In
addition, prior to the Closing Tune shall cause Box and SonicNet to provide MTVN
with reasonable access to all employees of Box and SonicNet and otherwise
cooperate with and assist MTVN in conducting MTVN's due diligence relating to
Box and SonicNet. To the extent requested by MTVN, prior to the Closing Tune
shall also provide MTVN with reasonable access to all employees of Tune who are
engaged in the businesses of Box or SonicNet.
5. Assignability. This Xxxxx.xx Agreement and the Definitive
Agreements, including the right to form Xxxxx.xx hereunder, may be fully
assigned by (i) MTVN to one or more affiliates of MTVN which is directly or
indirectly wholly-owned (and including for this purpose Imagine Radio) by Viacom
Inc., provided that MTVN guarantees, to Tune's reasonable satisfaction,
performance of such assignee's obligations hereunder and thereunder and (ii)
Tune
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to any of its wholly-owned subsidiaries, so long as such entities remain
wholly-owned subsidiaries of Tune and that Tune guarantees, to MTVN's reasonable
satisfaction, performance of such assignee's obligations hereunder and
thereunder. Any assignment by any party hereto in violation of this Section 5
shall be null and void ab initio.
6. Definitive Agreements. MTVN will prepare the initial drafts of, and
MTVN, Tune and Liberty shall use their reasonable best efforts to enter into,
contribution agreements, a limited partnership agreement, the License Agreement,
the Promotion Agreement, the Services Agreement, Box License Agreement, a
Liberty, MTVN and Tune parent agreement and guarantee (with no Liberty guarantee
of Tune's obligations) and other agreements required to reflect the terms
described herein, including related schedules, each of which shall reflect the
terms set forth herein or in the Term Sheet, and further containing such other
terms as are customary and appropriate in connection therewith (collectively,
the "Definitive Agreements") on or before the Closing date established pursuant
to Section 2 hereof; however, the parties hereto agree that this Xxxxx.xx
Agreement contains the principal terms and conditions of the transactions
contemplated hereby and that it shall be binding upon and enforceable by the
parties hereto with respect to the matters covered hereby until a Definitive
Agreement is signed which covers all or a portion of such matters, at which time
this Xxxxx.xx Agreement will no longer apply to the matters covered by such
Definitive Agreement (but will continue to govern with respect to any matters
not covered by such Definitive Agreement unless otherwise expressly provided in
such Definitive Agreement). At such time as Definitive Agreements are executed
which cover all matters covered hereby or state that they are intended to be
exclusive of all matters covered hereby, this Xxxxx.xx Agreement shall be
terminated and shall be of no further force or effect. Accordingly, whether or
not any or all of the Definitive Agreements are executed, MTVN, Tune and Liberty
shall consummate the Closing on the basis and subject to the conditions set
forth in this Xxxxx.xx Agreement, and MTVN, Tune and Liberty shall be bound by
the terms and provisions of this Xxxxx.xx Agreement to the extent not covered by
any executed Definitive Agreement unless otherwise agreed upon by Tune, Liberty
and MTVN. The Definitive Agreements shall contain (i) the covenants,
representations and agreements contained in this Xxxxx.xx Agreement, (ii) a
representation by Tune that, as of the date of this Xxxxx.xx Agreement and as of
the Closing, except for contracts entered into after the date hereof with the
consent of MTVN, neither Xxxxx.xx nor any of its subsidiaries shall be subject
to any non-competition provision, exclusivity provision, output or requirement
contract or right of first refusal or other similar contractual restrictions on
its ability to conduct its business (collectively, the "Restrictive Provisions")
by virtue of Xxxxx.xx's assumption either directly or through a subsidiary of
any contract or other arrangement of SonicNet or Box or any of their
subsidiaries or as a result of Xxxxx.xx being a successor to either SonicNet or
Box, other than such Restrictive Provisions as would apply solely to the Tune
Contribution as the case may be and other than those set forth in the contracts
and arrangements referred to in the Contract Binder Index dated May 18, 1999
attached as Schedule I and (iii) from the appropriate party, customary
representations regarding title to the assets being contributed to Xxxxx.xx,
sufficiency of assets being contributed and/or services or assets being made
available to Xxxxx.xx, corporate authority, no conflicts, contracts, historical
financial statements and intellectual property rights, since December 31, 1998
no event of material adverse change for Box or SonicNet (other than the Material
Adverse Change Exclusions), and other customary representations for transactions
of this type, subject to customary qualifications (including (whether or not
customary) exceptions for nonassignment and change in control provisions
(including the effect of the failure to obtain a
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waiver of or consent under any such provision), the matters referred to in
paragraph 3(c), and any other matters expressly disclosed to the other party in
writing prior to the execution of this Xxxxx.xx Agreement) (collectively, the
"Customary Representations"), which Customary Representations shall be made as
of the date of this Xxxxx.xx Agreement and as of the Closing, (iv) covenants
requiring MTVN to operate the businesses included in the MTVN Contribution, and
Tune to cause Box and Sonic Net to operate the businesses included in the Tune
Contribution, in a manner consistent with this Xxxxx.xx Agreement, and other
customary covenants for transactions of this type, including covenants to
cooperate in obtaining required third party approvals, but excluding any
covenants not to compete or similar covenants other than the covenants contained
in the Term Sheet under the headings "Non-Compete" and "Exclusivity"
(collectively, the "Customary Covenants"), (v) customary indemnities from the
applicable party relating to the representations (including the Customary
Representations) and covenants (including the Customary Covenants) made or
deemed made herein (it being understood that indemnities as to contributions
shall be made to Xxxxx.xx and that indemnities by Liberty shall relate only to
its obligations arising under the heading "Non-Compete" in the Term Sheet or in
the applicable Definitive Agreement), which indemnity for representations
(including the Customary Representations and the representation of Tune
contained in clause (ii)) will be subject to a $1.75 million tipping basket and
a $150 million cap (provided that once such tipping threshold is met, the
indemnifying party will be liable for the first dollar and up to the full $150
million cap hereunder) (collectively, the "Customary Indemnities"), (vi)
customary indemnities by Xxxxx.xx to the applicable contributing party with
respect to the performance of contracts assigned to and obligations assumed by
Xxxxx.xx and the operation of the contributed businesses after the Closing,
except that Xxxxx.xx shall not be obligated to indemnify any contributing party
with respect to obligations to the extent that they relate to pre-Closing
periods (other than accounts payable, accrued expenses, prepayments and similar
working capital items) or arise out of a breach or violation prior to the
Closing of any provision (other than a non-assignment or change in control
provision) of an assigned contract (the "Xxxxx.xx Indemnity"), and (vii) other
terms customary for transactions of this type (collectively, the "Other
Customary Terms"). Without limitation of the foregoing, from the date thereof
through the consummation of the Closing or the earlier termination of this
Xxxxx.xx Agreement in accordance with its terms, Tune agrees that it will not
permit (x) SonicNet or Box or any of their subsidiaries to enter into or renew
any affiliation agreement or amend any of the terms of any existing affiliation
agreement which is part of the Tune Contribution without the prior written
consent of MTVN, (y) Box or any of its subsidiaries to exercise its option under
any existing affiliation agreement to roll out Box Service onto any cable or
other system, and (z) Box or SonicNet or any of their subsidiaries to enter
into, renew or amend any agreement involving any significant expenditure or
obligation which Xxxxx.xx. would be obligated to pay or bear after the Closing.
Notwithstanding the foregoing, Tune shall be permitted to cause SonicNet or Box
to amend their respective agreements or take other actions, but only to the
extent necessary to effectuate the arrangements referred to in Schedule 1 to the
Term Sheet, to effectuate assignments thereof as contemplated by this Xxxxx.xx
Agreement and/or to eliminate or limit any Restrictive Provision. The Definitive
Agreements shall not contain any conditions to the obligation of any party to
consummate the Closing other than the conditions set forth in Section 3 hereof.
The parties agree that if and to the extent Definitive Agreements containing the
provisions of this Xxxxx.xx Agreement and the Customary Representations, the
Customary Covenants, the Customary Indemnities, the Xxxxx.xx Indemnity, and the
Other Customary Terms (with respect to the transactions contemplated by such
Definitive Agreement) are not executed by all parties prior to
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Closing, this Xxxxx.xx Agreement shall be deemed to contain the applicable
Customary Representations, the Customary Covenants, the Customary Indemnities,
the Xxxxx.xx Indemnity, and the Other Customary Terms, which shall be binding
upon and enforceable by the parties hereto as if set forth in Definitive
Agreements. Any dispute regarding the deemed terms of any Definitive Agreement,
including any Customary Representation, Customary Covenant, Customary Indemnity,
the Xxxxx.xx Indemnity, or Customary Other Term shall be resolved by bringing an
appropriate action before a court of competent jurisdiction referenced in
Section 12. At the Closing or when the Closing is deemed to have occurred,
Liberty and MTVN will deliver a writing (the "SSI Notice") to Satellite
Services, Inc. ("SSI") notifying SSI that the Closing has occurred, thereby
causing the affiliation agreement between SSI and MTVN (the "SSI Affiliation
Agreement") to become effective.
7. Termination. This Xxxxx.xx Agreement shall terminate and its
provisions shall become null and void (except for the obligation to maintain the
confidentiality of the Confidential Information contained in Section 4, which
shall survive and remain in full force and effect and except that such
termination shall not relieve any party for any liability for any breach arising
prior to such termination) with respect to all the parties hereto upon the
happening of any of the following:
(a) by the mutual written consent of the parties hereto;
(b) by any of MTVN, Tune or Liberty if the Closing has not
taken place by July 15, 1999 and the terminating party is not in
material breach of its obligations under this Xxxxx.xx Agreement;
(c) by any of MTVN, Tune or Liberty if any court of competent
jurisdiction has issued a final non-appealable order, stay, injunction
or decree restraining or prohibiting the consummation of the
transactions contemplated by this Xxxxx.xx Agreement; or
(d) by any of MTVN, Tune or Liberty if the conditions to such
party's obligations to consummate the transactions contemplated by this
Xxxxx.xx Agreement are impossible to satisfy; provided, that the
terminating party shall not have breached its obligations under this
Xxxxx.xx Agreement and as a result of such breach rendered the
conditions to its obligations to consummate the transactions
contemplated by this Xxxxx.xx Agreement impossible to satisfy.
8. Specific Performance. The parties recognize the unique nature of the
obligations of each party hereunder and therefore agree that each party shall be
entitled to specific performance of the obligations of the other parties set
forth in this Xxxxx.xx Agreement, including without limitation the obligation to
deliver the SSI Notice.
9. Costs and Expenses. Each party shall be solely responsible for the
payment of its own costs and expenses incurred in connection with the
negotiation and closing of the transactions contemplated hereby. Filing fees,
and sales and transfer taxes in connection with the consummation of the
transactions contemplated hereby will be borne by Xxxxx.xx. Each party
represents and warrants to the other parties that it did not engage the services
of a broker in
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connection with this Xxxxx.xx Agreement, and each party shall indemnify and hold
the other parties harmless from any breach of the foregoing representation and
warranty.
10. Disclosure. The parties will mutually agree on the form of any
public announcement or press release to be issued with respect to the subject
matter of this Xxxxx.xx Agreement; provided, however, that neither party shall
be required to obtain the consent of any other party for any disclosure required
by law or by the rules of any national securities exchange, but such required
disclosure may only be made after there has been meaningful consultation with
the other party.
11. Counterparts. This letter may be executed in one or more
counterparts (and all signatures need not be on any one such counterpart), with
all such counterparts together constituting one and the same instrument.
12. Governing Law; Submission to Jurisdiction. This Xxxxx.xx Agreement
and the rights and obligations of the parties hereto, and any claims or disputes
relating thereto, shall be governed by and construed under and in accordance
with the laws of the State of New York, excluding the choice of law rules
thereof. Each party to this Xxxxx.xx Agreement hereby irrevocably and
unconditionally: (i) agrees that any suit, action or proceeding against it by
any other party to this Xxxxx.xx Agreement with respect to this Xxxxx.xx
Agreement may be instituted, and that any suit, action or proceeding by such
party against any other party with respect to this Xxxxx.xx Agreement shall be
instituted, only in the Supreme Court of the State of New York, County of New
York, or the U.S. District Court for the Southern District of New York (and
appellate courts from any of the foregoing), as the party instituting such suit,
action or proceeding may elect in its sole discretion, (ii) consents and
submits, for itself and its property, to the jurisdiction of such courts for the
purpose of any such suit, action or proceeding instituted against it by the
other, (iii) agrees that a final judgment in any such suit, action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law, and (iv) waives the right to a
jury trial in any such suit, action or proceeding.
13. Certain Actions. Beginning promptly after the date hereof, the
parties will cooperate to take such action as is necessary to effectuate the
arrangements regarding Excluded Tune Assets as are described on Schedule 1 to
the Term Sheet.
14. No Presumption. This Xxxxx.xx Agreement and the Definitive
Agreements shall be construed without regard to any presumption or rule
requiring construction or interpretation against the party drafting or causing
any instrument to be drafted.
15. Entire Agreement. This Xxxxx.xx Agreement contains the entire
agreement of the parties with respect to the subject matter hereof and
supersedes any and all prior agreement and understandings, whether written or
oral, with respect to the subject matter hereof. Each party represents and
warrants to the other parties that (i) it has the requisite corporate power and
authority to execute, deliver and perform this Xxxxx.xx Agreement, and (ii) this
Xxxxx.xx Agreement constitutes the legal, valid and binding obligation of such
party and is enforceable against such party in accordance with its terms.
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16. Binding on Viacom. The parties acknowledge that MTVN is a division
of Viacom International Inc. and that consequently Viacom International Inc. is
obligated to perform the obligations to be paid or performed by MTVN hereunder;
provided that the use of the term "MTVN" in the Term Sheet in the sections
entitled "MTVN Contribution," "Officers," and "Exclusivity" shall refer only to
the operating unit or units of Viacom International Inc. that on a day-to-day
basis operate the business of MTV or VH-1.
17. Tune and Liberty. Each of the obligations under this Xxxxx.xx
Agreement of Liberty and Tune are several and not joint.
18. No Solicitation. From the date hereof until the Closing, neither
Liberty, Tune nor any of their Controlled Affiliates (as hereinafter defined)
(other than Box, SonicNet or its subsidiaries) will hire any person that is an
employee of SonicNet or Box or their subsidiaries at anytime during the period
from the date hereof to the Closing without the prior written consent of MTVN.
From the date hereof until the second anniversary of the Closing, neither
Liberty, Tune nor any of their Controlled Affiliates will hire any person who
becomes an employee of Xxxxx.xx or any of its subsidiaries upon consummation of
the Closing without the prior written consent of MTVN. Neither Liberty, Tune nor
any of their Controlled Affiliates will solicit for employment any employee of
Xxxxx.xx or any of its subsidiaries for so long as Tune or any of its affiliates
owns an equity interest in Xxxxx.xx.
19. Xxxxx.xx Adherence. As soon as is practicable after organization of
Xxxxx.xx, MTVN will cause Xxxxx.xx to execute a counterpart of this Xxxxx.xx
Agreement becoming a party thereto and accepting all its rights and obligations
hereunder.
20. Controlled Affiliates. A Controlled Affiliate of any person is an
affiliate as to which such person possesses, directly or indirectly, the
affirmative power to direct or cause the direction of the management and
policies of such affiliate (whether through ownership of securities, partnership
interests or other ownership interests, by contract, by membership or
involvement in the board of directors, management committee or other management
structure of such affiliate, or otherwise).
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If the foregoing is acceptable to you, please execute a copy of this
letter and return it to the undersigned, at which time this letter will
constitute a binding agreement among us.
Sincerely,
VIACOM INTERNATIONAL INC.
By: /s/ Xxxxxxx X. Xxxxxxxx
--------------------------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: Senior Vice President and
General Counsel
ACCEPTED AND AGREED
as of this 19th day of May, 1999.
LIBERTY MEDIA CORPORATION
By: /s/Xxxxx X. Xxxx
----------------------------
Name: Xxxxx X. Xxxx
Title: Senior Vice President
TCI MUSIC, INC.
By: /s/Xxxxx X. Xxxx
----------------------------
Name: Xxxxx X. Xxxx
Title: Vice President
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FINAL COPY
EXHIBIT A
TCI MUSIC, INC. / MTVN NETWORKS ONLINE
DIGITAL MUSIC JOINT VENTURE TERM SHEET
PARTIES: TCI Music, Inc. ("Tune")
Liberty Media Corporation ("Liberty")
MTVN Networks, a division of Viacom
International Inc. ("MTVN")
ENTITY: MTVN Online L.P. ("Xxxxx.xx"), a company to
be formed by
MTVN and Tune as described below. Music Co.
will be formed as a Delaware limited
partnership. Capitalized terms used but not
defined herein shall have the respective
meanings assigned to such terms in the
Letter Agreement dated May 18, 1999 (the
"Letter Agreement") among Viacom
International Inc., Liberty and Tune.
BUSINESS: The business of Xxxxx.xx (the "Business")
will be to (a) develop, operate, manage,
market, promote, distribute and license
text, audio and/or video music,
music-related and/or music-themed services
online and (b) engage in activities
reasonably related thereto, including
e-commerce applications and consumer
oriented commercial transactions related
thereto. Services that are intended
principally to be delivered to internet
browsers or software with browser
functionality, even if such browsers or
browser functionality are operating through
a set-top box or a television set and/or are
used to deliver video clips or video
programs, shall be included in the Business.
Notwithstanding the foregoing, businesses
that are substantially similar to the
businesses traditionally conducted by
television, cable and satellite television
program services, and businesses presently
described as "near video on demand" and
"video on demand" shall not be considered to
be included within the Business.
TUNE CONTRIBUTION: Tune will cause each of SonicNet, Inc.
("SonicNet") and The Box Worldwide Inc.
("Box") to contribute (the "Tune
Contribution") to Xxxxx.xx (x) all of the
assets and businesses (including, but not
limited to, all tangible and
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intangible technology, licenses, systems
infrastructure, billing systems and
marketing plans, all related rights of use,
licenses, trademarks, servicemarks and other
intellectual property rights related thereto
("Rights")) which are owned or controlled by
SonicNet or Box, as applicable, and which
relate to, or are reasonably necessary for
use in connection with its business, other
than those international assets and
businesses of Box and SonicNet exclusively
conducted by their direct or indirect
subsidiaries the stock of which will be
transferred as part of the Tune
Contribution, and (y) all of the capital
stock of the direct or indirect subsidiaries
of Box and SonicNet which exclusively
conduct international businesses of Box and
SonicNet, in each case except as
contemplated by Section 3(c) of the Letter
Agreement. Notwithstanding the foregoing,
the following assets (the "Excluded Tune
Assets") shall not be part of the Tune
Contribution and subject to the following
sentence shall be retained by Box or
SonicNet, as the case may be, (i) Agreement
dated on or about July 1997 between SonicNet
and Telstra-Multimedia Pty ACN, (ii) all
equity interests in The Box
Worldwide-Europe, B.V., (iii) all equity
interests in The Box Holland, B.V. ("Box
Holland"), and all agreements and
undertakings relating thereto (including
without limitation the Joint Venture
Agreement dated as of December 14, 1995 by
and among The Box Worldwide-Europe B.V.,
Quote Beheer BV and Box Holland and all
agreements annexed thereto or referenced
therein), (iv) IP Rights Agreement dated
October 30, 1998 by and among Video Jukebox
Network, Inc. ("VJN"), Video Jukebox Network
International Limited and EMAP plc ("EMAP"),
and (v) Share Purchase Agreement dated
October 30, 1998 by and between VJN and
EMAP. At the Closing, the parties will enter
into the arrangements described on Schedule
1 to this Term Sheet. SonicNet and Box will
each contribute the assets (subject to
assumed liabilities) constituting the Tune
Contribution as described in clause (x)
above to one or more limited liability
companies of which such company or a wholly
owned subsidiary thereof shall be the sole
member and such membership interest shall be
contributed to Xxxxx.xx at the Closing,
provided, however, that, except in the case
of contracts or other assets imposing
Restrictive Provisions, such method of
contribution will not be required if it
would cause material adverse tax
consequences to Tune or would materially
impede the obtaining of required consents.
Tune will also
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use its commercially reasonable efforts to
obtain rebates of all launch fees
("Rebates") paid to any cable system with
respect to which the affiliation agreement
relating to Box is terminated as a result of
the transactions contemplated hereby. Tune
will also pay to Xxxxx.xx any Rebates that
it or any of its subsidiaries receive in
respect thereof.
MTVN CONTRIBUTION: MTVN (or one or more of its affiliates)
will contribute to Xxxxx.xx all of the
assets and businesses (including all Rights
related thereto) owned or controlled by it
constituting MTVN's current or planned
assets and businesses engaged (or to be
engaged) exclusively in the Business
(including, but not limited to all of its
assets and businesses (including all Rights
related thereto) used or to be used
exclusively in connection with the XXX.xxx,
XX0.xxx and Imagine Radio businesses and
all wholly-owned international assets and
businesses engaged or to be engaged
exclusively in the Business, and any other
assets related to such businesses as will
be expressly agreed upon in the definitive
agreements with respect to the transactions
contemplated hereby). The foregoing assets
to be contributed are hereinafter referred
to collectively as the "MTVN Contribution";
provided, however, that the MTVN
Contribution to Xxxxx.xx shall not be
deemed to include any assets or businesses
held by the non-wholly owned international
businesses of MTVN described in Schedule 2
to this Term Sheet.
License Agreement: Pursuant to a license
agreement (the "License Agreement"), Viacom
International Inc. will or will cause MTVN
or a subsidiary to grant to Xxxxx.xx a
royalty free, non-exclusive, perpetual
license to Xxxxx.xx to use the brand names,
logos, trade names and trademarks of MTV and
VH1, as may be reasonably necessary in order
to operate the Business in the manner
previously disclosed to Tune. In addition,
the License Agreement will grant to Xxxxx.xx
(or to an MTVN subsidiary which will
contribute to Xxxxx.xx) to the extent it is
within the power of MTVN, Viacom
International Inc. or their respective
Controlled Affiliates to do so, a
non-exclusive, royalty free (except to the
extent royalties are payable to third
parties), perpetual license to Xxxxx.xx to
use the intellectual property and technology
of or relating to MTV, VH1, and their
respective Controlled Affiliates, including
programming and other content presented
thereon, as may be reasonably necessary in
order
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4
to operate the Business in the manner
previously disclosed to Tune. The License
Agreement shall not grant any rights to
Xxxxx.xx to the extent such rights are held
by the non-wholly owned international
businesses of MTVN described in Schedule 2
to this Term Sheet. Notwithstanding the
non-exclusivity provision of the License
Agreement, the licenses granted under the
License Agreement shall, in all material
respects, be exclusive as to the Rights
licensed thereunder with respect to the
Business. (For the avoidance of doubt, MTVN
may license such Rights to third parties for
the benefit of Xxxxx.xx.) The License
Agreement will contain customary terms and
conditions (no less favorable to Xxxxx.xx
than those granted to other Controlled
Affiliates of MTVN), including customary
terms and conditions reasonably necessary to
protect MTVN's ownership of such
intellectual property rights and to avoid
confusion regarding ownership of the
properties of MTVN and Xxxxx.xx.
Promotion Agreement: Pursuant to a promotion
agreement (the "Promotion Agreement") (which
may be entered into by MTVN with a
subsidiary which will contribute its rights
under the agreement to Xxxxx.xx), for so
long as Tune owns an equity interest in
Xxxxx.xx, MTVN will agree to use reasonable
efforts to promote, until the later of (i) 5
years from the Closing or (ii) two years
after the time when MTVN and its affiliates
own less than 50% of the equity interest in
Xxxxx.xx, the Business on MTV, VH1 or any of
their or MTVN's Controlled Affiliates in a
manner calculated to encourage consumers to
visit the websites contained in the
Business. Such promotion shall be provided
by MTVN for no consideration payable by
Xxxxx.xx or its Controlled Affiliates. Such
promotion will include advertising, VJ
mentions, text on screen, web links or other
promotional support by MTV, VH1 and their or
MTVN's respective Controlled Affiliates in a
manner and in amounts to be determined by
MTVN in its sole discretion; provided that
such promotion shall be (x) vigorous, to the
extent consistent with MTVN's normal
operation of its businesses other than
Xxxxx.xx, and (y) generally consistent in
overall effort to promotions provided by
other similarly situated media companies in
relation to the promotion of the internet
businesses of their subsidiaries and
affiliates. During the period from the
Closing until the fifth anniversary thereof,
such promotion shall have an aggregate fair
market value of
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5
not less than $100 million, as valued by the
CEO of Xxxxx.xx (or if the CEO has a
conflict of interest due to arrangements
between the CEO and MTVN, the most senior
officer of Xxxxx.xx not so conflicted). In
addition, Xxxxx.xx will at no charge to MTVN
promote the programming services of MTVN in
a reasonable manner as determined by the CEO
of Xxxxx.xx (or such non-conflicted senior
officer).
Services Agreement: MTVN and Xxxxx.xx will
enter into a services agreement (the
"Services Agreement") pursuant to which MTVN
will agree to provide administrative,
technical, support and other services
necessary to the operation of Xxxxx.xx,
including those to be identified in a
schedule to be attached to the Services
Agreement (the "MTVN Services"), to Xxxxx.xx
for a period of 5 years after the Closing or
such shorter period as the CEO may determine
at a fee which will equal MTVN's direct
costs plus a reasonable markup (which markup
shall be designed to approximate an
allocation to Xxxxx.xx of its pro-rata share
of management costs, overhead and other
charges common to Xxxxx.xx and other MTVN
businesses without markup).
15
6
INTERIM OPERATIONS;
FUNDING OBLIGATIONS:
Tune will cause SonicNet and Box to continue
to operate the assets and businesses being
contributed by them prior to the Closing of
the transactions contemplated hereby in the
ordinary course and in accordance with the
budget attached to this Term Sheet (the
"Tune Budget"). MTVN will continue to
operate the assets and businesses being
contributed by it prior to the Closing in a
manner which it reasonably believes will
further the Business of Xxxxx.xx and which
will not interfere with or frustrate the
transactions contemplated hereby; provided
that (i) if such operations involve a
related party transaction as described below
under the section entitled "Related Party
Transactions" for which a special audit
right is required, then MTVN shall grant
Tune a special audit right as to the
transaction and (ii) such operations will
not require Tune to exceed its $10 million
required capital contribution ceiling. From
the date hereof until the Closing, each of
MTVN and Tune shall and shall cause their
respective subsidiaries to fund its
respective assets and businesses to be
contributed to Xxxxx.xx with sufficient
capital to fund operations and, in the case
of Tune, such funding shall be in accordance
with the Tune Budget (such funding, the
"Pre-Closing Capital Contribution"). It is
agreed that such Pre-Closing Capital
Contributions shall include MTVN's and
Tune's overhead allocations on the following
basis: For MTVN, overhead shall be charged
and allocated in the same manner as it will
be charged and allocated to Xxxxx.xx after
the Closing. For Tune, overhead shall be
charged and allocated in the same manner as
historically charged and allocated to Box
and SonicNet and as reflected in the Tune
Budget. Each of MTVN and Tune shall provide
the other with periodic reports regarding
the level of capital contributions to its
businesses. At the Closing, MTVN and Tune
will disclose their respective Pre-Closing
Capital Contributions and if either party's
Pre-Closing Capital Contribution is less
than its pro-rata share (based on the
party's interest in the equity of Xxxxx.xx)
of the parties' combined Pre-Closing Capital
Contribution, such party shall contribute to
Xxxxx.xx an amount in cash (such party's
"Closing Contribution") such that, after
taking into account such amount and the
parties' Pre-Closing Capital Contributions
(which shall be deemed to have been
contributed as Additional Contributions (as
hereinafter defined) to Xxxxx.xx), the
parties' respective total capital
contributions to Xxxxx.xx reflect their
respective percentage
16
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Interests; provided, however, that in no
event will Tune and its subsidiaries be
obligated to fund (including its Pre-Closing
Capital Contributions) more than $10 million
in the aggregate pursuant to this paragraph
(whether as Pre-Closing Capital
Contributions or Closing Contributions).
Each of the MTVN Contributions and the Tune
Contributions shall be contributed to
Xxxxx.xx free and clear of all indebtedness
obligations in respect of such assets and
businesses, including all intercompany debt
and preferred stock. The Tune Contribution
shall not include any liabilities or
obligations related to the Tune Excluded
Assets. Each party will disclose to the
other all other accounts payable and other
contingent obligations relating to the
assets and businesses being contributed by
it, all of which shall become obligations of
Xxxxx.xx at the Closing. Upon the Closing,
the parties will enter into appropriate
assignment and assumption agreements.
EQUITY: In exchange for the MTVN Contribution, MTVN
or one or more affiliates who would be
permitted to be assignees under Section 5 of
the Letter Agreement (the "MTVN Partners")
will receive from Xxxxx.xx at the Closing
general and limited partnership interests in
Xxxxx.xx ("Interests") representing an
aggregate of 90% of the Interests in
Xxxxx.xx outstanding immediately following
the Closing.
In exchange for the Tune Contribution, Tune
or one or more wholly-owned subsidiaries of
Tune who would be permitted to be assignees
under Section 5 of the Letter Agreement (the
"Tune Partners") will receive from Xxxxx.xx
at the Closing limited partnership Interests
in Xxxxx.xx representing an aggregate of 10%
of the Interests in Xxxxx.xx outstanding
immediately following the Closing.
The contributions of MTVN (or its affiliates
who would be permitted to be assignees under
Section 5 of the Letter Agreement) and Tune
(or one or more subsidiaries who would be
permitted to be assignees under Section 5 of
the Letter Agreement) to Xxxxx.xx will be
structured in as tax-efficient a manner as
is practical, consistent with the terms of
the transactions contemplated hereby.
BOX LICENSE AGREEMENT:
To the extent requested by MTVN, Xxxxx.xx
will, subject to and consistent with the
arrangements contemplated in Schedule 1 to
this Term Sheet, license the intellectual
17
8
property rights (including trademarks, logos
and original programming), technology and
subscribers related to Box to MTVN (the "Box
License Agreement"). In consideration of
such license, MTVN will pay Xxxxx.xx a fee
comprised of a license fee and a
distribution fee. The license fee will equal
1.5% of the gross revenues received by MTVN
for a given year with respect to the
programming service (the "Box Service")
marketed by MTVN under the "Box" trademark.
The distribution fee shall equal $.30 per
year for each subscriber to Box Service
which MTVN obtains as a result of an
assignment of an affiliation agreement by
Xxxxx.xx to MTVN for which no consent is
required (the parties acknowledge and agree
that no such distribution fee shall be
payable with respect to subscribers to Box
through systems owned, managed or controlled
by AT&T Broadband and Internet Services). In
addition, MTVN will pay a distribution fee
of $.05 per year for each subscriber to Box
Service (other than subscribers subject to
the $.30 fee) which MTVN obtains as a result
of distribution of Box utilizing analog
distribution on a particular system
distributing Box on the Closing date and
continued without interruption, or the
distribution of an MTVN music service
specifically substituted for the
distribution of Box on a system. Such $.30
and $.05 distribution fees shall only be
payable with respect to subscribers under
any such assumed affiliation agreement for
the remaining term of the affiliation
agreement as of the date of transfer to MTVN
without any renewals or extensions;
provided, however, that for each of the
first three years of such license to MTVN,
MTVN shall pay the $.30 fee with respect to
no less than 500,000 subscribers and the
$.05 fee with respect to no less than
500,000 subscribers.
MANAGEMENT: Prior to the IPO, the business of Xxxxx.xx
will be managed by a Management Committee of
which one member will be a designee of Tune
and all other members will be designees of
MTVN. The definitive agreements will provide
that the Tune Partners will be entitled to
one designee on the Management Committee so
long as the Tune Stockholder Group (as
defined below) has satisfied the Minimum
Percentage Condition (as defined below). The
"Minimum Percentage Condition" shall be
deemed satisfied so long as the Tune
Stockholder Group owns at least 5% of the
outstanding equity interest in Xxxxx.xx
(excluding any Interests or Shares issued or
granted in a transaction with respect to
which Tune
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does not have preemptive rights); provided
Tune is not in material default of any of
its agreements contained herein or
contemplated hereby and provided that the
Tune Stockholder Group has not sold any of
its equity interest. In conjunction with the
IPO and the incorporation of Xxxxx.xx, Tune
and MTVN will enter into a stockholders
agreement pursuant to which Tune and MTVN
will agree that, so long as the Minimum
Percentage Condition is satisfied, each
party will take such steps as may be
necessary (including causing its director
designees to take actions) to nominate for
election, and to vote all voting securities
of Xxxxx.xx beneficially owned by it in
favor of the election of, one Tune designee
to the Board of Directors of Xxxxx.xx.
MANAGEMENT COMMITTEE
MATTERS: Prior to the IPO, the following matters must
be presented to the Management Committee and
approved by a majority of the members of the
Committee prior to Xxxxx.xx taking action in
respect thereof:
Amendments of Xxxxx.xx's limited
partnership agreement or any other
formation documents, except as provided
below
o Change in size of Management
Committee
o Issuance of new equity (other than
pursuant to approved employee
option plan) or modification of
terms of existing equity
o Incurrence of significant debt
o Significant asset acquisitions
o Change of auditors
o Adoption or amendment of employee
option plan
o Capital calls
o Grants of stock options
o Approval of business plan, annual
budget or material amendment
thereto
o Appointment, termination and
compensation of CEO
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o Cash distributions
TUNE APPROVAL: Prior to the IPO and for so long as the
Minimum Percentage Condition is satisfied,
the following matters must be presented to
the Management Committee and approved by a
supermajority vote of the Management
Committee, which supermajority must include
the Tune nominated member, prior to the
taking of action in respect thereof:
Amendments to Xxxxx.xx's limited partnership
agreement or any other formation documents
which would adversely affect the rights of
Tune. Without limiting the foregoing, the
issuance of equity by or options to purchase
equity in Xxxxx.xx and the amendment of the
Xxxxx.xx limited partnership agreement to
admit new limited partners shall not be
deemed to adversely affect the rights of
Tune.
20
11
EXECUTION COPY
o During the Restricted Period (as
defined below), admission of a new
general partner of Xxxxx.xx not
affiliated with MTVN, but only in
the event that such general partner
would have a right to designate
more members to the Management
Committee than MTVN or, through
contractual or other arrangements,
assert greater control over
Xxxxx.xx than MTVN.
o Entrance into any business other
than the Business.
o Any material amendment to the
Services Agreement, the License
Agreement, the Box License
Agreement or the Promotion
Agreement (the "Related Party
Agreements").
o Liquidation or dissolution of
Xxxxx.xx other than in conjunction
with an IPO; provided that Tune's
consent to such liquidation or
dissolution will not be
unreasonably withheld.
o The acquisition of equity in
Xxxxx.xx by MTVN or any of its
affiliates other than for cash.
RELATED PARTY TRANSACTIONS:
Any transaction between MTVN or any of its
Controlled Affiliates (other than Xxxxx.xx)
and Xxxxx.xx or any of its Controlled
Affiliates which Xxxxx.xx controls shall be
done on an arm's length basis. Prior to the
IPO, Tune shall have the right once a year
to designate an independent third party
auditor (who shall be reasonably acceptable
to MTVN), to audit related party
transactions, including advertising sales
arrangements, other than transactions
contemplated by the Related Party Agreements
if executed at Closing, and in the event
they are not executed at Closing, the
definitive agreements covering the matters
contemplated by the Related Party Agreements
that would be deemed pursuant to the Letter
Agreement to be in place as of the Closing.
It is agreed that the issuance of equity by
or options to purchase equity in Xxxxx.xx to
employees of MTVN or Viacom Inc. shall not
constitute a related party transaction
unless such equity is issued to such
employee in lieu of regular compensation
and; provided that such issuances in the
aggregate shall not exceed 10% of the
outstanding equity of Xxxxx.xx. If the
auditor finds that MTVN and Xxxxx.xx related
party transactions, in order for the
financial terms to
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12
represent those obtainable at arm's length,
require an adjustment in favor of Xxxxx.xx
of more than 10% or $1 million (whichever is
greater) in the aggregate, MTVN must modify
the financial terms of such transaction in
order to put such transaction on an arm"s
length basis for future periods and to
reimburse Xxxxx.xx retroactively to the time
such related party transaction was
implemented for the full cost of the benefit
of such transaction as determined by the
auditor ("Auditor's Findings") and MTVN
shall be required to pay for such audit;
otherwise, Tune shall be required to pay for
such audit. If either party disagrees with
the Auditor's Findings, such party (the
"Notifying Party") shall deliver a written
notice thereof ("the Dispute Notice") to the
other party (the "Receiving Party") within
30 days after receipt of the Auditor's
Findings. If no Dispute Notice is received
by the Receiving Party within such 30-day
period, the Auditor's Findings shall be
final and binding on MTVN and Tune. Upon
receipt by the Receiving Party of the
Dispute Notice, MTVN and Tune shall
negotiate in good faith to resolve any
disagreement with respect to the Auditor's
Findings. If MTVN and Tune are unable to
agree with respect to the Auditor's Findings
within 30 days after receipt by the
Receiving Party of the Dispute Notice, MTVN
and Tune shall promptly submit their dispute
to an arbitrator with no material
relationship to MTVN or Tune, selected by
the Notifying Party and reasonably
satisfactory to the Receiving Party, for a
binding resolution. The cost of the
arbitration will be borne as determined by
the arbitrator.
Prior to the IPO, in the event that MTVN or
any Controlled Affiliate of MTVN engages in
a related party transaction not contemplated
by the Related Party Agreements which
involves amounts (in any one transaction or
in a series of related transactions) in
excess of $1,000,000, MTVN must present such
transactions to Tune. It is agreed that the
issuance of equity by or options to purchase
equity in Xxxxx.xx to employees of MTVN or
Viacom Inc. shall not constitute a related
party transaction unless such equity is
issued to such employee in lieu of regular
compensation and; provided, that such
issuances in the aggregate shall not exceed
10% of the outstanding equity of Xxxxx.xx.
Tune may approve such transactions; however,
if Tune declines to
22
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approve such transaction, Tune may designate
an independent third party appraiser (the
"Appraiser"), who shall be reasonably
acceptable to MTVN, to determine the
fairness of the financial terms of such
transaction. If the Appraiser determines
(the "Appraiser's Findings") that the
transaction(s) is unfair to Xxxxx.xx by an
amount equal to 10% or more of the aggregate
net present value (using a 10% discount
rate) of the financial terms of such
transaction(s), MTVN shall elect either not
to engage in the transaction(s) or to modify
the financial terms in order to put such
transaction on an arm"s length basis for
future periods and to reimburse Xxxxx.xx
retroactively to the time such related party
transaction was implemented for the full
cost of the benefit of such transaction as
determined by the Appraiser. Otherwise, MTVN
and Xxxxx.xx may engage in the transaction
as originally presented to Tune. The cost of
such appraisal shall be borne by Tune unless
MTVN determines not to enter into the
transaction or such transaction requires an
adjustment as specified above, in which case
such costs shall be borne by MTVN. If either
party disagrees with the Appraiser's
Findings, such party (the "Appraiser
Notifying Party") shall deliver a written
notice thereof ("Appraiser Dispute Notice")
to the other party (the "Appraiser Receiving
Party") within 30 days after receipt of the
Appraiser's Findings. If no Appraiser
Dispute Notice is received by the Appraiser
Receiving Party within such 30-day period,
the Appraiser's Findings shall be final and
binding on MTVN and Tune. Upon receipt by
the Appraiser Receiving Party of the
Appraiser Dispute Notice, MTVN and Tune
shall negotiate in good faith to resolve any
disagreement with respect to the Appraiser's
Findings. If MTVN and Tune are unable to
agree with respect to the Appraiser's
Findings within 30 days after receipt by the
Appraiser Receiving Party of the Appraiser
Dispute Notice, MTVN and Tune shall promptly
submit their dispute to an arbitrator with
no material relationship to MTVN or Tune
selected by the Appraiser Notifying Party
and reasonably satisfactory to the Appraiser
Receiving Party for a binding resolution.
The cost of the arbitration will be borne as
determined by the arbitrator.
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OFFICERS: Xxxxx.xx shall have a Chief Executive
Officer. The Chief Executive Officer (and,
for so long as the Minimum Percentage
Condition is met, any successor) shall be
nominated by MTVN, subject to consultation
with Tune. The Chief Executive Officer may
be removed with or without cause (subject to
the obligations of any employment agreement
with such officer) by a vote of the majority
of the Management Committee.
CAPITAL CONTRIBUTIONS: The Management Committee of Xxxxx.xx may
request that MTVN and Tune make additional
contributions to Xxxxx.xx from time to time
prior to the IPO (each an "Additional
Contribution" which term shall be deemed to
include the Closing Contributions and the
Pre-Closing Capital Contributions) in order
to fund its operations in accordance with
the approved budget. Such Additional
Contributions shall be made by MTVN and Tune
on a pro-rata basis (based on their
percentage Interests) as required by and in
accordance with then current budgets up to
an aggregate amount of (x) $90 million in
the case of MTVN, and (y) $10 million in the
case of Tune, in each case taking into
account the Closing Contribution and
Pre-Closing Capital Contributions.
Without limiting MTVN's rights and remedies
in the event Tune fails to make a required
Additional Contribution, in the event Tune
fails to make an Additional Contribution,
MTVN or any third party may contribute the
Tune amount as equity, in which case Tune's
percentage interest in Xxxxx.xx shall be
diluted to the percentage that the aggregate
amount of capital contributions made by Tune
bears to the aggregate amount of all capital
contributions to Xxxxx.xx by its partners
assuming an initial valuation of the Tune
Contribution (excluding any Additional
Contribution) equal to $150 million;
provided, however, that prior to the IPO,
any such Additional Contribution to the
extent it would result in Tune's percentage
interest in Xxxxx.xx being diluted to less
than 5% (or such proportionate lower
percentage as appropriate if Tune has sold
any equity in Xxxxx.xx.), shall be made as
unsecured debt (on market terms), rather
than as equity.
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For purposes of the foregoing Capital
Contribution provisions, references to MTVN
shall be deemed to refer to the MTVN
Partners and references to Tune shall be
deemed to refer to the Tune Partners.
PUBLIC OFFERING: The parties acknowledge their intention that
Xxxxx.xx become a public company no later
than the second anniversary of the Closing
(subject to an extension of not more than 60
days upon the written advice of a nationally
recognized underwriter engaged to underwrite
the sale of shares in the IPO) (such date,
as it may be extended as provided herein the
"Offering Expiration Date"). For purposes of
this Term Sheet, the term "IPO" shall mean
the initial registered public offering of
Xxxxx.xx's common stock (the "Shares") which
results in such Shares being publicly traded
and listed on The Nasdaq Stock Market or a
national securities exchange. For the
avoidance of doubt, the failure of such IPO
to occur prior to such date shall not be a
breach.
In conjunction with the IPO, the parties
shall take such steps as may be reasonably
necessary to cause Xxxxx.xx to be rolled up
into a Delaware corporation immediately
prior to the IPO. The certificate of
incorporation and bylaws of Xxxxx.xx and the
stockholders agreement between Tune and MTVN
shall incorporate the management and
governance protections provided to the Tune
Partners herein which are applicable to the
period following the IPO.
If the aggregate value of the Shares that
would be held by the Tune Partners (with
each Share valued for such purpose at the
price to the public listed on the cover page
of the final prospectus delivered in
connection with the IPO) at the time of the
IPO is less than $175 million, and provided
that the Tune Partners are not in default of
their obligations hereunder and have made
all required Additional Contributions then
the aggregate number of shares issuable to
the Tune Partners shall be increased,
(without the payment of additional
consideration other than the par value of
the shares) such that (x) the aggregate
value of the Shares held by the Tune
Partners (the "Tune Shares") (valued as
aforesaid) shall equal $175 million or (y)
the aggregate number of Tune's Shares shall
equal
25
16
15% (as proportionately adjusted to reflect
dilution of Tune Partners' Interests below
10%) of the outstanding Shares, whichever
alternative results in the issuance of the
least number of Shares. The allocation
provisions of the partnership agreement of
Xxxxx.xx shall be drafted in a manner
consistent with the preceding sentence.
NO PUBLIC OFFERING: In the event that the IPO has not occurred
on or before the Offering Expiration Date,
Tune shall be entitled to request that the
Private Share Valuation (as defined below)
of the Shares or Interests held by the Tune
Partners be determined in accordance
herewith; such election shall be made by
written notice to MTVN and Xxxxx.xx
delivered within six months after the
Offering Expiration Date (the "Tune
Notice"). If the Private Share Valuation of
the Shares or Interests held by the Tune
Partners is determined to be less than $175
million and provided the Tune Partners are
not in default of their obligations
hereunder and have made all required
Additional Contributions, Xxxxx.xx shall
promptly issue to the Tune Partners (without
the payment of additional consideration
other than the par value of the Shares) such
additional number of Shares or Interests as
is required to cause (x) the aggregate
Private Share Valuation of the Shares or
Interests held by the Tune Partners to equal
$175 million or (y) the aggregate number of
Shares or Interests held by the Tune
Partners to equal 15% (as proportionately
adjusted to reflect dilution of the Tune
Partners' Interests below 10%), of the
outstanding Shares or Interests, whichever
alternative results in the issuance of the
least number of Shares or Interests.
Upon receipt by MTVN of the Tune Notice,
MTVN and Tune shall attempt to mutually
agree on the fair market value of the Tune
Partner's Shares or Interests. If the
parties are unable to reach agreement within
60 days after the Tune Notice was received
by MTVN, each of MTVN and Tune shall retain
within 30 days thereafter an investment bank
to determine the fair market value of the
Tune Partner's Shares or Interests. If any
party fails to make its selection, the sole
investment bank selected shall make the
determination. Each investment bank shall
submit its estimation of the fair market
value within forty-five (45) days from the
date of its selection. If the determinations
of fair market value by
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the investment banks vary by less than ten
percent (10%) of the average of the two
determinations, the fair market value shall
be the average of the two determinations. If
such determinations vary by more than ten
percent (10%) of the average of such two
determinations, the two investment banks
shall promptly designate a third investment
bank which shall be unaffiliated with any of
the first two investment banks and shall not
have had any significant affiliation with,
or engagement for, any of the parties or any
affiliates of any of the parties during the
two years prior to its selection. The third
investment bank shall select one of the two
determinations which it believes is the fair
market value of such Shares or Interests
within thirty (30) days from the date of its
selection. The determination of the fair
market value in accordance with the
foregoing procedure shall be final and
binding on the parties and shall be the
"Private Share Valuation". The determination
of the Private Share Valuation of the Tune
Partner's Shares or Interests shall be based
on a valuation of Xxxxx.xx on the greater of
a going concern or liquidation basis. In
addition, such valuation shall assume the
continuation of the Promotion Agreement in
accordance with its then current terms.
POST IPO GOING
PRIVATE TRANSACTION: In the event that following the IPO, MTVN
determines to take Xxxxx.xx private, MTVN
shall offer the Tune Partners an opportunity
to continue their existing equity interest
in Xxxxx.xx on the same basis as the MTVN
Partners (taking into account their relative
equity interests in Xxxxx.xx) instead of
being cashed out in such transaction.
NON-COMPETE: Except as contemplated by Section 3(c) of
the Letter Agreement, neither Tune nor
Liberty, directly or indirectly through
their respective Controlled Affiliates,
shall, for a period ending on the earlier of
(x) 3 years from the Closing or (y) such
date as MTVN Stockholder Group (as defined
below) ceases to own the largest percentage
of the outstanding equity of Xxxxx.xx and
have the right to designate the greatest
number of directors to serve on Xxxxx.xx"s
Management Committee or Board as the case
may be (the "MTVN Loss of Control Date"),
make an investment in, or own or otherwise
operate the Business
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other than its investment in Xxxxx.xx or
announce or disclose any intention to do any
of the foregoing.
Except as contemplated by Section 3(c) of
the Letter Agreement, neither Tune nor
Liberty, directly or indirectly through
their respective Controlled Affiliates,
shall, for a period ending on the earlier of
(x) five years from the Closing or (y) the
MTVN Loss of Control Date, make an
investment in, or own or otherwise operate
any cable or satellite audio/visual
television services, digital or analog,
principally or in large part devoted to
music-related or music-themed programming
(the "Television Business"), or announce any
intention to do any of the foregoing.
The foregoing restrictions on competition
shall not apply to any of the following or
the announcement of any of the following:
(i) the operations of DMX as currently
conducted, the operation of an internet
radio business by DMX through sites owned or
operated by Lycos and any of its successors
and assigns pursuant to DMX's current
agreement with Lycos as it may be amended
(the "Lycos Deal"), or the operations of DMX
as a distributor of a bona fide subscription
service consisting exclusively, with de
minimis exceptions, of audio and/or text
and/or non-moving pictures content provided
that the foregoing will not include an
internet radio business (other than the
Lycos Deal) similar to Xxxxxxx.xxx or
Imagine Radio as currently conducted; (ii)
e-commerce operations which derive less than
50% of their revenue from music related
products; provided that if such e-commerce
operation is a television service which
includes visual programming, such
programming shall not contain music related
programming for more than (x) 33% of the
time such programming is aired on any given
day, (y) four consecutive hours on any given
day, or (z) 120 minutes on a given day
during the hours of 6:00 p.m. to 12:00 a.m.;
(iii) any business which would fall within
the definition of the Television Business so
long as less than 35% of its programming
consists of music related programming; (iv)
investments or acquisitions of less than 3%
of the outstanding equity interests in any
company, or investments or acquisitions of
less than 25% of the outstanding equity
interests in a company involved in the
Television Business
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and not involved in the Business; (v) the
acquisition or ownership of any interest in
a company or assets not principally engaged
in the Business or the Television Business
(i.e., the competing business does not
represent in excess of 35% of the fair
market value of the assets or revenues of
such acquired or owned company or assets);
(vi) any interest in a company resulting
from a spin-off from a company in which
Tune, Liberty or any of their Controlled
Affiliates holds an interest that does not
violate the non-compete provision of this
Term Sheet; (vii) any interest in a company
resulting from an exercise of rights to
acquire securities or interests in such
company (directly or indirectly) from any
person if such rights would be forfeited if
not so exercised or if Liberty, Tune or such
Controlled Affiliate would be required to
sell or dispose of its interest in such
company (provided, that the acquisition of
such rights as they relate to the Business
or the Television Business was ancillary to
the transaction in which such rights were
acquired); (viii) any interest in Black
Entertainment Television; (ix) any interest
in Ticketmaster; (x) the ownership and
operation of any Tune Excluded Assets as
existing and operating on the date hereof or
as otherwise necessary to fulfill the
obligations under or with respect to the
Tune Excluded Assets; provided, that Tune
may extend the business of Box Holland to
other Dutch-speaking operating territories
and may upgrade Box Holland's technology for
use by Box Holland; and (xi) if Xxxxx.xx
invests in the Interactive Music Channel
referred to below, an investment in such
Interactive Music Channel. Notwithstanding
the foregoing, the exceptions to the
restrictions on competition set forth in the
prior sentence shall not be available to
Tune, Liberty or their Controlled Affiliates
if any of such persons structures a
transaction to fall within one of such
exceptions with the primary purpose of
evading the restrictions on competition
contained herein and subsequently engages in
such a transaction.
If Tune, Liberty or any of their respective
Controlled Affiliates makes an acquisition
of a company which has a competing business
and clause (v) above is the only one of the
exceptions to the restrictions on
competition provisions pursuant to which
such acquisition is permitted, at such time
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20
during the restricted period applicable to
such competing business as Tune, Liberty or
any of their respective Controlled
Affiliates acquires control of such
competing business, Liberty or Tune must, or
must cause the Controlled Affiliate to,
offer to sell such competing business to
Xxxxx.xx at a price not in excess of the
fair market value of the consideration paid
and if Xxxxx.xx declines to purchase such
competing business, Liberty or Tune must, or
must cause the Controlled Affiliate to,
divest it, unless (i) the Board of Directors
of Liberty or Tune or such Controlled
Affiliate shall have been advised by outside
counsel that the approval by such Board of
such sale to Xxxxx.xx or divestiture (a
"Disposition") is reasonably likely to
constitute a breach by such directors of
their fiduciary duties owed to third parties
or stockholders other than stockholders of
Tune or its parent entities, (ii) such
Disposition would violate the provisions of
any contract to which Liberty, Tune or such
Controlled Affiliate is a party (other than
contracts entered into with a primary
purpose referred to in the last sentence of
the preceding paragraph), or (iii) such
Disposition would trigger any tax liability
for Liberty or Tune or such Controlled
Affiliate which is material to Liberty or
Tune and would otherwise not be triggered;
provided, however, that in the event of the
occurrence of any of the circumstances
referred to in clauses (i)-(iii) above, such
obligation to make a Disposition shall arise
at such subsequent time during the
restricted period applicable thereto, if
any, as such potential breach of fiduciary
duty or potential breach of contract or such
adverse tax consequence may be reasonably
avoided.
EXCLUSIVITY: For a period of five years from the Closing,
so long as the Minimum Percentage Condition
is satisfied, if MTVN, directly or
indirectly through a Controlled Affiliate,
acquires or makes an investment in or
otherwise operates the Business other than
through Xxxxx.xx, MTVN shall provide Tune
the right to purchase a pro-rata interest in
such business or assets; provided that this
provision shall not apply to (i) any
children's services, including children's
music services regardless of the means of
distribution of such services; (ii) the
delivery of content purely ancillary to a
business that is not the Business, provided
that the ancillary content that may be
delivered relates solely to MTVN and its
operations;
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(iii) investment or acquisitions of less
than 3% (and, after the third anniversary of
the Closing date, 25%) of the outstanding
equity interest in any person or entity;
(iv) the acquisition or operation of any
interest in a company or assets not
principally engaged in the Business (i.e.,
the competing business does not represent in
excess of 35% of the fair market value of
the assets or revenues of such acquired
company or assets); or (v) any current or
future business conducted by any of the
entities listed on Schedule 2 to the extent
such businesses were not part of the MTVN
Contribution.
For a period of five years from the Closing,
so long as the Minimum Percentage Condition
is satisfied, MTVN will not promote the
Business as owned or operated by any
affiliate of MTVN (other than Xxxxx.xx) on
its cable television services except on
commercial terms.
TRANSFER RESTRICTIONS: Prior to the first to occur of the third
anniversary of the Closing and the IPO (the
"Restricted Period"), none of Tune, MTVN or
their respective Controlled Affiliates may
make any transfers (whether direct or
indirect, voluntary or involuntary or
otherwise) of any Interest in Xxxxx.xx,
except that (i) each of Tune and MTVN shall
be entitled to transfer its Interest to and
among those persons comprising its
Stockholder Group (as defined below), (ii) a
change in control of Liberty or Tune, on the
one hand, or MTVN or Viacom Inc., on the
other hand, shall not constitute an indirect
transfer of an Interest, (iii) sales of
capital stock or other securities of Tune or
Liberty on the one hand, or MTVN or Viacom
Inc., on the other, shall not constitute a
sale of any Interest in Xxxxx.xx, (iv) any
contribution of Liberty's assets or
businesses to Liberty Management Group LLC,
pursuant to a Contribution Agreement dated
March 9, 1999, among Liberty, AT&T, and
certain other persons shall not constitute a
transfer (direct or indirect) of an Interest
and (v) any spin-off or other transaction
which results in any of Tune, Liberty or
MTVN (or any successor thereof) ceasing to
be a subsidiary of its current parent entity
shall not constitute a transfer of an
Interest. A "Stockholder Group" shall mean,
with respect to Tune, Liberty and its
wholly-owned subsidiaries and Tune and its
wholly-owned subsidiaries, and with respect
to MTVN, Viacom Inc. and its wholly-owned
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subsidiaries (and including for this purpose
Imagine Radio so long as its performance
hereunder is guaranteed by MTVN in
accordance with Section 5 of the Letter
Agreement), in each case so long as any such
member of a Stockholder Group remains a
wholly-owned direct or indirect subsidiary
of Tune, Liberty or Viacom Inc., as
applicable.
A direct or indirect pledge of an Interest
in Xxxxx.xx to secure indebtedness for money
borrowed or to secure a derivative
transaction shall not constitute a transfer
of an Interest prior to foreclosure on such
pledge, so long as there is no voting proxy
agreement related to such pledge.
After the Restricted Period, MTVN will have
a right of first offer on customary terms
with respect to any transfer of Tune's
Shares (other than transfers permitted
pursuant to this section during the
Restricted Period), except with respect to
Tune Shares offered to the public pursuant
to Tune's Registration Rights referred to
below; provided that in determining whether
MTVN's offer is higher than a third party
offer pursuant to this right of first offer,
such offers shall be evaluated on an after
tax basis.
After the end of the Restricted Period until
the sixth anniversary of the Closing, if
MTVN intends to sell a controlling interest
in Xxxxx.xx in one transaction or a series
of related transactions, (i) MTVN will have
pro-rata drag-along rights vis-a-vis Tune
and (ii) Tune will have pro-rata tag-along
rights vis-a-vis MTVN; provided, however,
that such drag-along rights will not be
available to MTVN in a sale of less than all
of its interest in Xxxxx.xx if it structures
a transaction in such a manner that as a
result of an agreement or arrangement with
the acquiring entity MTVN will end up with a
controlling interest in Xxxxx.xx (directly
or through the acquisition of an interest in
the acquiring entities) within a 12 month
period after such sale and provided that if
MTVN sells a controlling interest in
Xxxxx.xx in a series of related
transactions, Tune's tag along and drag
along shall be at the related weighted
average per share or percentage Interest
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23
consideration paid to MTVN for its Shares or
Interest in such transactions.
PREEMPTIVE RIGHTS:
Prior to the IPO and for so long as the
Minimum Percentage Condition is satisfied,
Tune will have the right to participate, on
a pro-rata basis, in connection with any
issuance of additional Interests or Shares,
(i) other than with respect to the sale of
Interests or Shares to directors, employees
or consultants of Xxxxx.xx, MTVN or Viacom
International Inc. pursuant to an employee,
consultant or director option plan or (ii)
in a public offering. Following the IPO and
for so long as Tune satisfies the Minimum
Percentage Condition, Tune will be entitled
to participate on a pro-rata basis with MTVN
in connection with any offering of Shares to
MTVN.
CONFIDENTIALITY: Except as and to the extent required by law,
each party will keep confidential any
information obtained from the other party in
connection with the transactions
contemplated by this Term Sheet. If
negotiations of the agreements contemplated
by this Term Sheet are terminated, each
party will return to the other applicable
party all information obtained by such party
from the other party in connection with the
transactions contemplated by this Term Sheet
and shall destroy all written materials,
memoranda, notes and other writings prepared
which are based upon or otherwise reflect
the information. Any information not
returned or destroyed, including without
limitation, any oral information, shall
remain subject to the confidentiality
obligations.
EXPENSES: Except as otherwise set forth herein, each
party will bear its own costs and expenses
arising in connection with the transactions
contemplated hereby.
FREEDOM OF ACTION:
Liberty, Tune, MTVN and Viacom Inc. (and
their respective directors, officers,
employees, shareholders and affiliates) will
not have any obligation to present any
business opportunity to Xxxxx.xx or to
refrain from engaging in any business other
than as expressly provided in the
Non-Competition or Exclusivity provisions,
as applicable.
REGISTRATION RIGHTS:
(a) Upon the written request by Tune,
Xxxxx.xx will effect the registration under
the Securities Act of 1933, as amended (the
"Securities Act"), of such amount of Shares
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held by the Tune Stockholder Group as are
specified in such notice; provided, however,
that (i) Xxxxx.xx shall not be required to
effect any registration pursuant to such
request unless such request covers at least
25% of such Shares, (ii) Tune shall not be
entitled to more than two (2) such completed
registrations (of the full amount of Shares
for which registration is requested), (iii)
Xxxxx.xx shall not be required to register
Shares if Xxxxx.xx delivers to Tune an
opinion of counsel to the effect that all
such Shares for which registration was
requested may be sold in a single
transaction without registration under the
Securities Act and (iv) Tune may not
exercise a demand right in order to cause
the IPO. Xxxxx.xx shall pay all costs and
expenses of such registration, other than
underwriting commissions or direct selling
expenses. Tune may register Shares in the
IPO, subject to underwriter cutbacks, as one
of its piggyback rights (see below);
provided, that the offering of Tune Shares
in the IPO may be cut back to avoid
triggering any tax liabilities for any party
hereto in connection with Xxxxx.xx's
incorporation.
(b) So long as the Tune Stockholder Group
owns at least 1% of the outstanding Shares
or Interests, Xxxxx.xx will provide Tune
with at least twenty (20) days written
notice of its plan to proceed with any
registration under the Securities Act (other
than a registration on Form S-4 or Form S-8
or similar or successor forms utilized in
the future), regarding a proposed offering
of Xxxxx.xx securities. Tune may request in
writing, within ten (10) days after receipt
of such notice, that Xxxxx.xx include any or
all of the Shares of the Tune Stockholder
Group in the proposed registration, subject
to pro-rata cutback at the underwriter's
discretion; provided, however, that Xxxxx.xx
shall not be required to register Shares if
Xxxxx.xx delivers to Tune an opinion of
counsel to the effect that all such Shares
for which registration was requested may be
sold in a single transaction without
registration under the Securities Act. Tune
will pay any direct incremental expenses
attributable to the registration of its
Shares.
PUTS AND CALLS: During the 60 day period commencing on the
fifth anniversary of the Closing, Tune may
require MTVN to
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purchase all, but not less than all, of the
Shares or Interests of the Tune Stockholder
Group by delivering written notice to MTVN
(the "Put Notice") for a price to be
determined as follows:
(i) if Xxxxx.xx has not had an IPO, in
accordance with the Private Share
Valuation; or
(ii) if Xxxxx.xx has had an IPO, in
accordance with the Public Share
Valuation.
During the 60 day period commencing on the
sixth anniversary of the Closing, MTVN may
require the Tune Stockholder Group to sell
all, but not less than all, of their Shares
by delivering written notice to Tune (the
"Call Notice") for a price to be determined:
(i) if Xxxxx.xx has not had an IPO, in
accordance with the Private Share
Valuation; or
(ii) if Xxxxx.xx has had an IPO, in
accordance with the Public Share
Valuation.
The Public Share Valuation shall be average
of the closing price as listed on the
applicable exchange, NASDAQ stock market or
over the counter market for the 40 trading
days prior the Put Notice of the Call
Notice, as the case may be.
If pursuant to the Exclusivity provision,
Tune acquires an investment in an entity
other than Xxxxx.xx, such investment will
also be subject to the put or the call and
shall be valued in the same manner in
accordance with the Private Share Valuation
or the Public Share Valuation, as
appropriate, taking into account whether
such investment is in a private or public
company.
INTERACTIVE MUSIC CHANNEL: Attached as Exhibit A to this Term Sheet, is
a true and correct copy of the agreement
between Liberty and AT&T Corp. ("AT&T")
regarding the terms upon which Liberty is
entitled to use certain bandwidth on the
AT&T cable systems (the "AT&T Systems") for
interactive television programming (the
"Access Provisions"). Liberty currently
intends to assign its rights under the
Access Provisions to
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Tune in connection with certain
recently-announced proposed transactions
between Liberty and Tune. Assuming that such
assignment is made, then to the extent that
AT&T provides or otherwise enables the
functionalities necessary to provide
interactive television applications over the
AT&T Systems, and Tune decides to provide an
interactive music and music related
transaction channel, Tune will offer to
Xxxxx.xx the opportunity to enter into a
joint venture with Tune to provide such
channel, the terms and conditions of such
joint venture to be subject to the terms of
the Access Provisions, as they may be
amended. Formation of the joint venture
would also be subject to Tune and Xxxxx.xx"s
formulation of a mutually acceptable
business plan and to the execution and
delivery of reasonably acceptable definitive
documentation regarding the joint venture.
In the event that Liberty does not assign
its rights under the Access Provisions as
they may be amended to Tune, Liberty will
not be obligated by the terms of this
paragraph. This paragraph is not intended to
obviate any of the obligations of Liberty,
Tune or their Controlled Affiliates under
the "Non-Compete" section of this Term
Sheet.
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EMPLOYEES OF BOX AND SONICNET: Prior to the Closing, MTVN, with the
assistance of Tune, shall determine which of
the employees of Box or SonicNet it believes
should become or remain employees of
Xxxxx.xx or any of its subsidiaries. Other
than with respect to employees described in
the immediately preceding sentence, Box and
SonicNet shall retain and Tune shall hold
Xxxxx.xx harmless against all liabilities
with respect to their employees including
any severance, option exercise and other
costs and expenses. Xxxxx.xx shall treat the
former Box and SonicNet employees which will
become employees of Xxxxx.xx in a fair and
equitable manner, consistent with other
employees of Xxxxx.xx (including those
previously employed by MTVN). Xxxxx.xx shall
not assume any liability or obligation under
any employee benefit plan, policy, or
arrangement or any employment agreement of
Box, SonicNet or any of their affiliates,
except as may be expressly agreed to by
MTVN. If Xxxxx.xx agrees to hire or retain
any Box or SonicNet employee as of the
Closing, Xxxxx.xx will assume the
obligations arising after the Closing under
any existing disclosed employment contract
for such employee.
